One day my boss came into the office raving about this tape he'd gotten from somebody. It was "Dead Doctors Don't Lie", a brilliantly crafted pitch for nutritional supplements. And he wasn't the only one... I started getting copies of this tape in the mail, sometimes 2-3 copies a day. For about six months or so in 1996, it was the hottest thing going.
This thing was an MLM deal and the inducement to sign up went something like this: You buy 1000 copies of this tape, you buy a list from us, you mail the copies to 1000 people... ten of them sign up and buy more tapes, and each send to 1000 people.... pretty soon you'll have hundreds of people in your downline and you'll be drinking margaritas on a cruise ship somewhere in the Mediterranean.
Malcolm Muggeridge said "News is old things happening to new people." There are a few things to be learned from this, that apply to affiliate marketing online today.
If the deal was really as good and easy as that, the company wouldn't recruit distributors, they would mail the tapes out themselves. But one of the advantages of an MLM program for a startup company is the company can still make a profit on a sales process that fundamentally loses money. Let me explain.
Let's say the company mails out 1000 tapes at a cost of $1000 and sells $2000 of product and makes a net profit of $100 at the end of the day. They're gonna send that thing out until they run out of mailing lists that work.
Which is exactly how direct marketing companies like Lands End and Sharper Image make their bread.
But let's say they mail out 1000 tapes at a cost of $1000 and sell $600 of product. That's a $400 loss.
It's bad business unless you can convince somebody else to buy the tapes.
That's where the MLM structure comes in. Because all you have to do is make it sound like people are going to make money and they'll try it. And usually recruit one or two people before they've spent a few thousand bucks and only made a few hundred back. And the company still makes money.
Not just on the products. They also sell the tapes.... and they sell the same mailing list over and over again, mailing lists that no "brick and mortar" list broker would touch with a 10 foot pole.
As Harvey Mackay says, "Beware the naked man who tries to sell you his shirt."
Back in the day, I wasn't in "Dead Doctors Don't Lie," but I was a sucker for other things. And the #1 experience that de-programmed me from this stuff was when I started using direct mail to get retail customers for my business.
No matter how hard I tried, I couldn't make the economics work. I could write great copy and do everything just right, and I still lost money. I realized that I was trying to take a fundamentally inefficient business and then make it multiply ("duplicate") with Pixie Dust.
Pixie Dust can be effective for a little while, but the reason MLM companies constantly go down in flames is every single foot soldier is running a business in the red, compensating with borrowed enthusiasm. The whole thing stays alive because someone's churning people through the revolving door.
This has an exact equivalent in affiliate marketing today - other than the advertising medium, things haven't changed a bit. People recruit new people to buy Google traffic every day, so each day new people come into the market and drive up bid prices. The guys on the front lines bleed while generals drink wine hundreds of miles away, safe from enemy fire.
This is most prevalent in the "make money on the Internet" category, where a sucker is born every six seconds. The guy who runs the affiliate programs gets all the profit while all his affiliates just repeat the same failed experiment over and over again.
Please understand, it doesn't have to work this way. Many times it doesn't. It doesn't work this way for McDonalds, where every franchise owner can potentially be successful, and most are. McDonalds works because the fundamental business unit, the single store, runs in the black - so the satellites are profitable too.
This is why it's so important to make your sales funnel work - with traffic you buy yourself - before you ever recruit your first affiliate. As much as possible, you should do everything you can to ensure that your affiliates will be successful. That your sales funnel converts visitors to buyers better than the competitors.
This is also true for any kind of publicity you seek. There are some genies you can rub only once. An endorsement from a major leader in your industry - before you cash in that favor, make sure your sales funnel works. Before you go on Oprah make sure your website does its job.
The few who get all this right before they rub their publicity and affiliate genies and call in their favors make a pleasant discovery. They discover that when the exponential growth curve hits, it HITS, big-time. They discover their niche was actually much bigger than they thought.
At my Roundtable meeting last week in Florida (my $14,000 a year private mentoring group) we were discussing the fact that it's actually easier to go from $50,000 a year to $500,000 a year online than go go from $5,000 to $50,000. It's much easier to be #1 in your market than to be #4.
Once you've legitimately conquered the sales conversion beast, it's a magic carpet ride the rest of the way.
[Via Perry Marshall]
Vanity Fair : Magazine
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